Final Results
Cookson Group PLC
15 March 2005
15 March 2005
ANNOUNCEMENT OF 2004 PRELIMINARY RESULTS
2004 2003 Increase/(decrease) vs. 2003
Continuing Operations Reported rates Constant rates
Turnover £1,698m £1,624m +5% +11%
Operating profit* £119.6m £81.2m +47% +60%
Return on sales* 7.0% 5.0% +2.0 pts +2.1 pts
Group
Profit/(loss) before tax - headline* £93.1m £32.6m +186%
- basic £(18.7)m £(187.3)m
Earnings per share - headline* 3.3p 1.1p +200%
- basic (2.7)p (10.9)p
Free cash flow £51.6m £15.7m +£35.9m
Net debt £306.9m £358.5m £(51.6)m
*(before amortisation of intangibles and exceptional items)
Highlights
• Operating profit up 60% at constant exchange rates
- all three divisions record strong increases in operating profit
• Significant improvement in return on sales
• Headline EPS increases three-fold
• Marked reduction in net debt
• New £200 million bank facility announced in March 2005
• Strategic review concluded
Commenting on the Group's results and current trading, Nick Salmon, Chief
Executive, said:
'2004 has shown a further strong improvement in Cookson's performance, with
significantly enhanced profitability across all three divisions and a much
improved balance sheet. This stemmed from healthy growth in our main
end-markets and the benefits of extensive restructuring and repositioning
actions. We have also improved Cookson's risk profile over the past two years
by eliminating some of the most cyclical and underperforming elements of the
business.
'Trading in the early weeks of 2005 suggests that the robust market conditions
experienced by the Ceramics division in 2004 are continuing. In the Electronics
division, there was evidence in late January and February that customers were
de-stocking inventories of some higher margin products, although momentum now
appears to be returning. The relatively weak retail trading environment which
impacted the Precious Metals division throughout the second half of 2004 remains
but many jewellery industry observers remain optimistic of a recovery.
'From this position, we are confident that we can deliver additional
improvements as we execute our strategy to enhance operational performance,
strengthen our balance sheet further via the disposal programme and build on our
core businesses.'
OVERVIEW
Summary of Group results
Turnover for the Group's continuing operations of £1,698 million was 5% higher
than 2003 at reported exchange rates and 11% higher at constant rates.
Operating profit of £120 million rose by 47% over 2003 at reported rates and by
60% at constant rates. This, in turn, resulted in a 2 percentage point
improvement in return on sales in 2004 at reported rates to 7%.
Higher operating profit from continuing activities, the eradication of losses
from discontinued businesses and lower interest costs led to a marked increase
in Group profit before tax, amortisation of intangibles and exceptional items to
£93 million, up from £33 million in the prior year. Headline earnings per share
increased three-fold to 3.3p compared with 1.1p in 2003.
Exceptional operating charges of £23 million were incurred in 2004 as the Group
continued to streamline and rationalise operations. Non-operating exceptional
costs of £57 million arose from the further divestment of non-core and
underperforming businesses. Amortisation of intangibles amounted to £33
million. As a consequence, the loss for 2004 after all exceptional items and
amortisation of intangibles was £50 million (2003: £205 million loss).
Continued tight management of working capital and capital expenditure, as well
as strong cash generation in the fourth quarter and a positive exchange rate
effect, resulted in Group net debt at the year end falling by £52 million to
£307 million.
In March 2005, the Group's £148 million secured committed bank facility was
replaced with a new £200 million bank facility. The new facility has a term of
three years, with options to extend for a further two years. It is unsecured,
with all security and guarantees attached to the previous facility being fully
released, and contains improved pricing and terms.
Strategic Initiatives and Strategic Review
Action was taken during 2004 to address underperforming businesses, as outlined
below. These measures are expected to yield improved operating results going
forward and to improve the Group's risk profile by significantly reducing its
exposure to highly cyclical markets.
• Restructuring of Precious Metals in Europe: two manufacturing sites
in France were closed during 2004 and seven sales offices were consolidated into
three. European production was reorganised to focus on gold products in the UK
and silver products in Spain. Completion of this programme will take place in
the second quarter of 2005.
• Restructuring of Electronics in the USA and Europe: in the second
half of the year, a further phase of restructuring in the Laminates sector
commenced in the USA and Germany, including rationalisation of the US-based
divisional head office. Completion of the US initiatives and implementation of
a social plan in Germany, which has been agreed with the local unions, are
scheduled to take place in the first half of 2005.
• Disposals and rationalisation in Ceramics: as part of the strategy
to exit low margin commodity activities, two brickmaking businesses based in
Belgium and Germany were sold in December 2004. In addition, three facilities
were rationalised in the USA with production transferred to existing sites in
the USA and Mexico.
• Sale of fraternity rings business: this non-core Precious Metals
business was sold in December 2004.
After his appointment in July 2004, Chief Executive Nick Salmon, together with
the Board, conducted an in-depth strategic review, the outcome of which was
presented to the financial markets on 18 January 2005.
The main conclusions arising out of the strategic review were that:
- there has been a common misconception that Cookson is a pure
electronics company. In reality, since the disposal of the loss-making
equipment business Speedline and the restructuring of Laminates, less than 30%
of Group sales and profits come from electronics markets;
- all of the Group's main businesses command strong market shares and
technology positions and have production facilities that are well adapted to
their geographic markets, however more can be done to improve performance;
- the Group has adequate financial resources. The new £200 million
unsecured bank facility is a clear and tangible confirmation of the Group's
improved financial condition and prospects; and
- disposal of one of the two larger divisions or a demerger of the Group
into its constituent parts is unlikely to create shareholder value for a number
of reasons, including significant earnings dilution.
As a result of the review, the Group will pursue a strategy which incorporates
the following:
• Operational focus will be on developing the performance of the
Group's core businesses by capitalising on existing strong market shares and
technological expertise and investing further in growing markets. Operational
improvement plans are being introduced at all businesses designed to produce
marked gains in competitiveness, profitability and cash generation.
• Debt will be reduced significantly over the next 2-3 years through a
combination of stronger operational cash flow - from improved profitability and
working capital management - and a disposal programme which aims to raise over
£100 million from the sale of a number of non-core businesses across all three
divisions.
• Specific financial targets set for each division for the next three
years envisage a return to double digit return on sales being achieved across
the Group by the end of 2007.
• The Board intends to return Cookson to the dividend list as soon as
possible, with dividends funded on an ongoing basis from free cash flow.
CURRENT TRADING AND OUTLOOK
Trading in the early weeks of 2005 suggests that the robust market conditions
experienced by the Ceramics division in 2004 are continuing. In the Electronics
division there was evidence in late January and February that customers were
de-stocking inventories of some higher margin products, although momentum now
appears to be returning. The relatively weak retail trading environment which
impacted the Precious Metals division throughout the second half of 2004 remains
but jewellery industry observers generally remain optimistic of a recovery.
From this position, we remain confident that we can deliver additional
improvements as we execute our strategy to enhance operational performance,
strengthen our balance sheet further via the disposal programme and build on our
core businesses.
RESULTS OF OPERATIONS
Note. The data provided in the tables on pages 4 to 8 are at constant exchange
rates, i.e. expressing 2003 results at 2004 exchange rates, as this provides a
more meaningful comparison of underlying trading performance. Reported results
for the year for the Group and each division can be found in the financial
statements and notes on pages 15 to 20. In addition, all information: excludes
the results of discontinued operations in 2003, primarily Speedline; excludes
the Group's share of results attributable to joint ventures (unless stated
otherwise); and states operating profit before amortisation of intangibles and
exceptional items. The impact of acquisitions was immaterial in 2004 and 2003.
Group - Continuing operations
Turnover (£m) Operating Profit (£m) Return on Sales (%)
2004 2003 2004 2003 2004 2003
First half 842 746 55.1 29.8 6.5 4.0
Second half 856 778 64.5 45.2 7.5 5.8
Year 1,698 1,524 119.6 75.0 7.0 4.9
Turnover for the Group's continuing operations, including joint ventures, was
11% higher in 2004 than 2003. In the second half of 2004, turnover increased by
10% over the second half of 2003 and fourth quarter turnover of £437 million was
4% higher than the same quarter last year. These growth rates reflect the fact
that Group performance had begun to recover in the second half of 2003,
particularly in the fourth quarter of that year.
Higher profits across all three divisions resulted in a 60% increase in
operating profit in 2004; fourth quarter operating profit of £35.6 million was
18% higher than the same quarter last year. All three divisions registered
improvements in operating profit for the year over 2003: Ceramics increased by
£10.6 million (23%), Electronics was £30.0 million (154%) higher and Precious
Metals was up £1.7 million (23%). Profits from joint ventures rose by £2.3
million at constant exchange rates to £4.0 million.
Return on sales for the Group's continuing operations improved by 2.1 percentage
points in 2004 to 7.0% and has risen sequentially in each half year since the
beginning of 2003. All divisions recorded year-on-year rises in return on sales.
The fastest growing and most profitable region for the Group continued to be
Asia-Pacific which accounted for 24% of the Group's customer base in 2004 and
47% of operating profit. The USA remained the Group's largest region in terms
of turnover, representing 30% of the total in 2004. There was a major
improvement in profitability in this region where the rationalisation
initiatives outlined above, and others that had commenced in 2003, began to bear
fruit.
Ceramics division
Turnover (£m) Operating Profit (£m) Return on Sales (%)
2004 2003 2004 2003 2004 2003
First half 358 330 25.9 22.4 7.2 6.8
Second half 381 337 30.9 23.8 8.1 7.1
Year 739 667 56.8 46.2 7.7 6.9
(Note. Data shown for the Ceramics division excludes the share of results
attributable to joint ventures.)
Market Conditions
Approximately 70% of the Ceramics division's turnover is linked to the level of
steel produced in the markets in which it operates. Global steel production
surpassed one billion tonnes for the first time in 2004, rising 9% over the
previous year. Production in the division's established markets - the USA and
Europe - was 5% higher year-on-year. China continued to be the world's largest
producer of steel, accounting for over 25% of total world production. Steel
production in the division's other emerging steel markets remained strong,
including India, Russia, Ukraine and Brazil.
In the division's Foundry sector, activity is largely centred on US and European
markets and market conditions in this sector were, as is often the case, similar
to those seen in the steel industry. The Industrial Processes sector has a
diverse market base which experienced mixed conditions in 2004. In the Glass
sector, furnace relining and glass output remained solid and sales for the
sector's products grew soundly. Demand for solar energy - and thus for the
Glass sector's crucibles used in the manufacturing of photovoltaic cells - was
robust.
Divisional Performance
Turnover for 2004 of £739 million was 11% higher than 2003. Turnover for the
Iron & Steel sector rose 12% which was driven by the growth in steel production
in the regions in which it operates and was boosted by relatively low margin
supply and construction contracting. Turnover in the Foundry sector was up
marginally and was slightly lower for Industrial Products, whereas in the Glass
sector, turnover grew strongly. Growth in turnover was steady throughout the
year and in the fourth quarter rose 9% to £195 million.
Continental Europe and the UK collectively remained the division's largest
region, accounting for 41% of total turnover and the USA was the next largest
with 30% in 2004. Turnover in the Asia-Pacific region continued to grow strongly
and accounted for 13% of the total in 2004.
The division registered another year of solid profit performance in 2004 with
operating profit increasing by 23% to £56.8 million. The year's results were
positively impacted by solid growth in profits by the Iron & Steel sector and
particularly strong growth in the Glass sector. As a result, return on sales
for the division improved by 0.8 percentage points to 7.7%. In the fourth
quarter, operating profit was £15.9 million, up 20% over the same period in
2003.
Electronics division
Turnover (£m) Operating Profit (£m) Return on Sales (%)
2004 2003 2004 2003 2004 2003
First half 308 258 23.3 6.3 7.6 2.4
Second half 318 269 26.2 13.2 8.2 4.9
Year 626 527 49.5 19.5 7.9 3.7
(Note. Data shown for the Electronics division and sectors excludes the share
of results attributable to joint ventures.)
Market Conditions
The Electronics division began to see a recovery in its markets in the fourth
quarter of 2003 and trading conditions remained favourable throughout 2004.
Double digit year-on-year growth rates were recorded by the electronics industry
in the first three quarters of 2004 but, as anticipated, the rate of growth
slowed in the fourth quarter. The electronics industry's established market
drivers - PCs and mobile handsets - grew strongly in 2004 as did demand for
consumer electronic devices which are driving the industry to an increasing
degree. The Asia-Pacific region enjoyed the strongest industry growth in terms
of both production and local end market demand; North America also grew, whereas
activity in Europe was subdued.
In the division's non-electronics markets, which account for some 30% of its
sales, sound conditions prevailed for the year, particularly in its automotive
related markets in the USA, Europe and Asia-Pacific.
Divisional Performance
Turnover for the division rose by 19% in 2004. As for the wider electronics
industry, the division's year-on-year turnover growth for each of the first
three quarters was strong and averaged 23%. In the fourth quarter, as expected
given the strong recovery seen in the last quarter of 2003, turnover of £159
million was up 8% year-on-year and unchanged sequentially.
Higher turnover and the benefits of wide-ranging restructuring initiatives led
to operating profit for 2004 being more than twice that of 2003. Return on
sales improved strongly year-on-year to 7.9% in 2004 and has grown sequentially
for each half year since the beginning of 2003. Operating profit in the fourth
quarter was £14.3 million, an increase of 32% over 2003.
Asia-Pacific continued to be the division's largest and most profitable region,
again reflecting the experience of the wider electronics industry. In 2004,
operations in Asia-Pacific accounted for 40% of the Electronics division's
turnover and three-quarters of its operating profit. The second largest region,
the USA, contributed 27% of the division's turnover and, although only
marginally profitable, recorded a vastly improved performance than in 2003 when
losses of some £19 million were registered.
Assembly Materials
Turnover for the Assembly Materials sector grew by 28% in 2004 to £280 million.
However, approximately two-thirds of this increase was related to a significant
rise in the price of tin - the sector's major raw material - which rose by some
70% and was, in the main, passed on to customers during the course of the year.
In line with the division as a whole, the performance of the sector's operations
in the Asia Pacific region was particularly robust.
Operating profit for the Assembly Materials sector grew by 48% in 2004 to £22.2
million, helped by both higher volumes in the sector's surface mount and
speciality coatings product areas and by lower manufacturing costs. Return on
sales for the year also improved, rising to 7.9%, despite the impact of sharply
higher tin prices.
Chemistry
The Chemistry sector, whose sales address the electronics and industrial markets
in equal measure, experienced strong demand for PCB fabrication chemistries in
Asia-Pacific whilst growth for these products was flat in Europe and contracted
in North America. High margin semiconductor copper sales were robust on a
worldwide basis. The industrial segments - particularly automotive - achieved
sound growth across all regions. In addition, a decision was taken in the second
half of the year to withdraw from certain low margin, precious metal decorative
products.
Overall, the sector's turnover was 5% higher year-on-year at £214 million.
Operating profit improved markedly to £27.2 million, an increase of 45% over
2003, and return on sales rose to 12.7% for the year.
Laminates
Market conditions for Laminates improved significantly in 2004, with demand for
products related to high reliability server applications and lead free assembly
fuelling growth. The sector reported turnover of £132 million, 26% higher than
2003. The improvement arose mainly from strong growth in Asia-Pacific, passing
on higher raw material costs, the benefits of the new product introductions and
some important market share gains.
Following heavy losses in the three previous years, the sector operated at or
around break-even during the year and, as a consequence, contributed a
year-on-year improvement in operating profit of £14.4 million. This resulted
from both higher turnover and the benefits of the extensive cost cutting and
capacity realignment measures in the USA and Europe undertaken in 2004 and in
previous years. The US and European operations operated at a loss in 2004 and
hence the focus of the restructuring and rationalisation initiatives remains in
these regions. In the sector's profitable Asia-Pacific operations, which
account for some 50% of turnover, the emphasis is on increasing capacity.
Precious Metals division
Turnover (£m) Operating Profit (£m) Return on Sales (%)
2004 2003 2004 2003 2004 2003
First half 151 139 3.3 0.4 2.2 0.3
Second half 137 151 6.0 7.2 4.4 4.7
Year 288 290 9.3 7.6 3.2 2.6
Market Conditions
The Precious Metals division faced difficult market conditions again in 2004 as
consumer confidence remained depressed in the USA and Europe, the division's
main markets. The fourth quarter holiday shopping season was lacklustre across
the retail industry, including jewellery sales. White metals and gemstone items
continued to be popular with jewellery purchasers at the expense of the yellow
gold items which are the division's core products. The gold price was volatile,
as it had been in 2003, whilst maintaining an underlying upward trend.
Divisional Performance
The Precious Metals division's turnover for 2004 was 1% lower than 2003;
excluding the precious metal content, the net sales value of £116 million was
also 1% lower than 2003. After year-on-year growth of 8% in the first half,
turnover fell by 10% in the second half. Higher turnover in the first half
reflects the non-recurrence of the US retailer de-stocking experienced in that
period in 2003, whereas sales in the second half were lower due to the weak
holiday season and to an anticipated slippage in sales following the transfer of
the division's French production capacity to the UK and Spain. Turnover in the
fourth quarter was £73 million, 11% lower than the same period in 2003.
Despite marginally lower turnover, the Precious Metals division's operating
profit was 22% higher than 2003. This is due to the benefits of the cost saving
initiatives in the USA and France and to improved manufacturing efficiencies.
Further improvement is expected in Europe once the programme to manufacture all
gold products in the UK and silver in Spain has been fully implemented. Some
55% of the division's net sales value originates from its US operations with the
balance in Europe, although the US operations remain significantly more
profitable. Return on net sales value was 8.0%, 1.1 percentage points higher
than 2003. Fourth quarter operating profit was £4.8 million, 6% lower than the
fourth quarter of 2003.
Joint ventures
Joint venture turnover in 2004 was £45.2 million, up 16% on 2003. Operating
profit from joint ventures was £4.0 million, an increase of 135% on the prior
year.
The majority of the joint venture results related to the Chemistry sector's
joint venture in Japan. This business performed well, with turnover of £39.6
million up 36% and operating profits increasing by £1.6 million to £3.5 million
on the back of a very strong performance in the first quarter of 2004.
The Laminates sector's loss-making joint venture with Fukuda was wound up during
2004 after recording sales of £1 million and an operating loss of £0.4 million
in the year.
GROUP PROFIT AND LOSS
Profit before tax, exceptional items and amortisation of intangibles
£millions*
2004 2003
First half 42.0 5.5
Second half 51.1 27.1
Year 93.1 32.6
*(at reported exchange rates)
Group profit before tax, exceptional items and amortisation of intangibles was
£93.1 million for 2004, which was £60.5 million higher than 2003. This increase
arose as follows:
• £44.6 million (60%) increase in operating profit from continuing
operations at constant exchange rates;
• eradication of losses of £17.0 million that were incurred by operations
discontinued in 2003, predominantly Speedline;
• £5.1 million decrease in interest; and
• £6.2 million adverse exchange rate translation variance for operating
profit of continuing operations.
The adverse exchange rate translation effect arose mainly as a consequence of
the weakness of the US dollar and its 'tracking' currencies versus sterling.
The decrease in interest in 2004 from £31.6 million to £26.5 million arose
primarily from a lower charge for the amortisation of refinancing fees and a
favourable exchange rate impact of £2.8 million. The average interest rate on
drawn borrowings, excluding the amortisation of refinancing fees and the
deferred income from interest rate swaps, was 6.8%, similar to that of 2003.
The margins on the new bank facility arranged in March 2005 are at a lower level
than the previous facilities.
Exceptional items and amortisation of intangibles
Operating exceptional items
In 2004, operating exceptional charges of £22.7 million (2003: £22.2 million)
arose, consisting of £7.9 million of asset write-offs and £14.8 million of
cash-related costs. Of the total charge for 2004:
• £2.9 million arose in the Ceramics division for the
rationalisation of three manufacturing facilities in the USA;
• £9.9 million related to programmes to optimise the manufacturing
capacity and product offering of the Laminates sector of the Electronics
division in the USA and Europe and to reorganise the divisional and sector
management structures; and
• £9.9 million arose in respect of the programme to reorganise the
Precious Metals division's European operations.
A further operating exceptional charge of approximately £10 million is expected
to accrue in 2005 to continue these initiatives.
An exceptional interest charge of £2.4 million arose in 2003; no charge arose in
2004.
Net loss on disposal of operations
A net loss on disposal of operations of £39.8 million arose in 2004 (2003:
£165.7 million), consisting of a net loss before goodwill of £27.5 million and a
write-back/off of goodwill of £12.3 million, primarily from the following:
• sale of two brickmaking plants in Europe in the Ceramics
division (£33.2 million); and
• winding up of the Cookson Fukuda joint venture in the UK in
which the Group had a 50% share (£7.4 million).
The net loss in 2003 of £165.7 million was mainly in respect of the sale of
Speedline and the Precision Products businesses.
Net (loss)/profit on fixed assets
A net loss of £16.8 million in 2004 (2003: £5.1 million profit) was due
primarily to a £17.9 million write-down in the value of the Group's investment
in a revenue sharing arrangement put in place in 1998 with ELI Inc. over a fibre
optic cable network in the USA.
Amortisation of intangibles
In 2004, the charge for the amortisation of intangibles, mainly goodwill, was
£32.5 million (2003: £34.7 million).
Profit/loss before tax on ordinary activities
The loss on ordinary activities before tax for 2004 of £18.7 million was £168.6
million lower than the loss of £187.3 million recorded in 2003. This significant
improvement arose, as set out above, from higher operating profits, lower
interest and decreased losses on disposal of operations.
Taxation
The Group recorded a total tax charge of £27.4 million (2003: £14.8 million).
This consists of:
• a charge of £26.2 million (2003: £9.8 million) on profit before
tax, exceptional items and amortisation of intangibles, representing an
effective rate of 28% (2003: 30%); and
• exceptional tax charges and a net tax charge on exceptional
items and goodwill of £1.2 million (2003: £5.0 million).
The Group wrote down its deferred tax assets by £10.0 million in light of a
reassessment of expected future geographical profit contributions. This was
partly offset by £3.6 million of tax credits arising from disposals and
operating exceptional costs and the release of £5.2 million from fair value tax
provisions in respect of a prior period acquisition.
Profit/loss for the year
Profit for the year before exceptional items and amortisation of intangibles was
£62.8 million (2003: £20.4 million) with the £42.4 million increase over 2003
arising from the significant rise in profit before tax and a lower effective tax
rate, partly offset by £1.7 million higher minority interests on increased
profits.
After taking account of exceptional items and amortisation of intangibles after
tax of £113.0 million (2003: £224.9 million), the Group recorded a loss for the
year of £50.2 million; this was £154.3 million lower than the £204.5 million
loss incurred in 2003.
Earnings per share (EPS)
Headline EPS, based on profit for the year before exceptional items and
amortisation of intangibles, amounted to 3.3 pence per share in 2004, a
three-fold increase on the 1.1 pence recorded in 2003. The Company believes
this basis of calculating EPS gives the most appropriate measure of the
underlying earnings per share of the Group.
Basic EPS, based on profit for the year after amortisation of intangibles and
exceptional items, was a loss per share of 2.7p (2003: 10.9p loss).
The average number of shares in issue during 2004 was 1,883 million (2003: 1,880
million) and the number of shares in issue at 31 December 2004 was 1,895
million.
Dividends
No dividends have been paid or proposed in respect of 2003 or 2004. It is the
Board's intention to return Cookson to the dividend list as soon as possible,
with dividends paid on a sustainable basis from free cash flow.
GROUP CASH FLOWS
Net cash inflows from operating activities
In 2004, the Group generated £145.5 million of net cash inflow from operating
activities, which was £38.0 million more than 2003. This increase arose from:
• a £47.5 million increase in EBITDA to £162.3 million;
• a cash outflow of £17.0 million for trade working capital in 2004
compared with an inflow of £10.3 million in 2003;
• a net increase in cash inflow for operating provisions and accruals of
£18.0 million; and
• a similar cash spend for rationalisation costs of £14.2 million.
In the first half of 2004, cash outflows for trade working capital were £53.7
million in response to significantly higher levels of trading activity at the
end of June 2004 compared with the end of December 2003. In the second half of
2004, cash inflows from trade working capital of £36.7 million were generated
due to both normal fourth quarter seasonal inflows and continued attention paid
to the management of working capital. The latter is evidenced by the percentage
of average trade working capital to sales decreasing from 22.8% in 2003 to 21.3%
in 2004.
Cash outlaid for rationalisation costs of £14.2 million arose primarily in the
Electronics division (£6.6 million) and in the Precious Metals division (£6.4
million) in respect of programmes which commenced in 2004 and in prior years.
Some £10 million is expected to be outlaid in 2005 for rationalisation
programmes which commenced in 2004.
Capital expenditure
Payments to acquire fixed assets were £42.3 million in 2004, £6.2 million lower
than 2003 and representing 0.9 times depreciation (2003: 0.9 times).
Receipts from the disposal of fixed assets, primarily for properties, were £1.5
million in 2004, down from £5.8 million in 2003.
Operating cash flow
Operating cash flow for 2004 for the Group, i.e. cash flow from operating
activities plus dividends received from joint ventures less net capital
expenditure, amounted to £107.0 million, which was £40.0 million, or 60%, higher
than 2003. The cash conversion rate for continuing operations, i.e. operating
cash flow as a percentage of operating profit excluding joint ventures, was 91%,
in line with that achieved on average in the last five years.
Interest and dividends paid to minority shareholders
Net cash outflows for interest in 2004 were £31.6 million compared with £29.1
million in 2003. The £2.5 million year-on-year increase comprised a decrease in
payments on borrowings of £2.8 million offset by a cash inflow for the close-out
of long-dated interest rate swaps of £5.3 million in 2003.
Dividends paid to minorities of £3.1 million (2003: £1.5 million) rose in line
with increased profits.
Taxation
Tax cash outflows for 2004 were £20.7 million, the same as in 2003.
Free cash flow
£ millions
2004 2003
First half (21.2) 8.8
Second half 72.8 6.9
Year 51.6 15.7
Free cash flow - being net cash flow before financing, acquisitions and
disposals - improved from £15.7 million in 2003 to £51.6 million in 2004, with
the increase arising primarily from higher operating profitability. In the
second half, free cash flow increased strongly compared with both the prior year
and the first half of 2004 due to higher profits and significantly higher cash
inflows from trade working capital.
Acquisitions and disposals
Acquisitions
In 2004, net cash outflow for acquisitions was £12.0 million (2003: £19.1
million), of which £10.0 million was in respect of deferred consideration for
prior period acquisitions with the balance for the acquisition of a small
Ceramics business in China. The balance owing for deferred consideration for
prior period acquisitions is £13.4 million, of which £7.9 million falls due in
2005.
Disposals
Net cash inflow from disposals amounted to £1.4 million (2003: £49.7 million)
and relates to the sale of certain of the Ceramics division's brick plants in
Europe and the fraternity ring business of the Precious Metals division, partly
offset by the costs of winding up the Cookson Fukuda joint venture. In 2003, the
cash inflows from disposals related primarily to the sale of the Precision
Products sector.
In addition, outlays in respect of costs arising from prior years' disposals
amounted to £10.0 million (2003: £9.1 million).
Net cash inflow before financing and decrease in net debt
The aggregate effect of the above cash flows resulted in net cash inflow before
financing of £31.0 million for 2004 (2003: £37.2 million). This, together with a
positive translation effect of £21.8 million due primarily to a decrease in the
value of US dollar denominated borrowings, resulted in a decrease in net debt of
£51.6 million to £306.9 million.
GROUP BORROWINGS
The following table presents the Group's reported net debt position at 31
December 2003 and 2004:
At 31 December 2004 (£m) At 31 December 2003 (£m)
US Private Placement loan notes 296.7 318.4
Convertible bonds - 80.0
Committed bank facilities 40.0 -
Other loans, overdrafts, other 17.6 16.9
Gross borrowings 354.3 415.3
Cash and short-term deposits (47.4) (56.8)
Net debt 306.9 358.5
In 2004, the Group's core borrowing requirements were satisfied by $570 million
(£296.7 million) of US Private Placement loan notes that are due for repayment
between 2005 and 2012 and a £188 million committed syndicated bank facility that
was arranged in December 2003. During the year, £80 million of convertible bonds
were repaid and £40 million of the bank facility was cancelled.
In March 2005, a new £200 million bank facility was arranged which replaced the
then remaining £148 million facility. The new facility carries improved pricing
and terms, including a term of three years to 1 March 2008, with options to
extend by a further two years. It is unsecured, with all security and
guarantees under the previous facility fully released. Taking account of the new
facility, together with the Group's existing private placement notes, total
committed borrowing facilities available to the Group now amount to
approximately £500 million.
Shareholder/analyst enquiries:
Nick Salmon, Chief Executive Cookson Group plc
Dennis Millard, Group Finance Director Tel: 020 7061 6500
Lisa Williams, Investor Relations Manager
Press enquiries:
John Olsen, Hogarth Partnership Hogarth Partnership
020 7357 9477
Copies of Cookson's 2004 Annual Report are due to be posted to the shareholders
of the Company on 22 April 2005 and will be available on the Company's website
and at the Registered Office of the Company after that date.
Cookson management will make a presentation to analysts on 15 March 2005 at 9:
30am (UK time). This will be broadcast live on Cookson's website. An archive
version of the presentation will be available on the website from mid-afternoon
on 15 March.
Forward Looking Statements
This announcement contains certain forward looking statements regarding the
Group's financial condition, results of operations, cash flows, dividends,
financing plans, business strategies, operating efficiencies or synergies,
budgets, capital and other expenditures, competitive positions, growth
opportunities for existing products, plans and objectives of management and
other matters. Statements in this document that are not historical facts are
hereby identified as 'forward looking statements' for the purpose of the safe
harbour provided by Section 21E of the US Exchange Act and Section 27A of the US
Securities Act. Such forward looking statements, including, without limitation,
those relating to the future business prospects, revenues, working capital,
liquidity, capital needs, interest costs and income, in each case relating to
Cookson, wherever they occur in this document, are necessarily based on
assumptions reflecting the views of Cookson and involve a number of known and
unknown risks, uncertainties and other factors that could cause actual results,
performance or achievements to differ materially from those expressed or implied
by the forward looking statements. Such forward looking statements should,
therefore, be considered in light of various important factors. Important
factors that could cause actual results to differ materially from estimates or
projections contained in the forward looking statements include without
limitation: economic and business cycles; the terms and conditions of Cookson's
financing arrangements; foreign currency rate fluctuations; competition in
Cookson's principal markets; acquisitions or disposals of businesses or assets;
and trends in Cookson's principal industries.
The foregoing list of important factors is not exhaustive. When relying on
forward looking statements, careful consideration should be given to the
foregoing factors and other uncertainties and events, as well as factors
described in documents the Company files with the UK and US regulators from time
to time including its annual reports and accounts.
Such forward looking statements speak only as of the date on which they are
made. Except as required by the Rules of the UK Listing Authority and the London
Stock Exchange and applicable law, Cookson undertakes no obligation to update
publicly or revise any forward looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward looking events discussed in this report might not
occur.
Cookson Group plc, 265 Strand, London WC2R 1DB
Registered in England and Wales No. 251977
www.cooksongroup.co.uk
Group Profit and Loss Account
for the year ended 31 December 2004
2004 2003
Before Exceptional Before Exceptional
exceptional items and exceptional items and
items and amortisation items and amortisation
amortisation of intangibles amortisation of
of intangibles Total of intangibles intangibles Total
note £m £m £m £m £m £m
Turnover, including joint ventures 1
Continuing operations 1,698.2 - 1,698.2 1,623.9 - 1,623.9
Discontinued operations - - - 57.8 - 57.8
Total turnover 1,698.2 - 1,698.2 1,681.7 - 1,681.7
Share of joint ventures (45.2) - (45.2) (41.2) - (41.2)
Turnover of Group subsidiaries 1,653.0 - 1,653.0 1,640.5 - 1,640.5
Operating profit/(loss) 1
Continuing operations 115.6 - 115.6 79.2 - 79.2
Operating exceptional items 2 - (22.7) (22.7) - (22.2) (22.2)
Amortisation of intangible assets - (32.5) (32.5) - (34.7) (34.7)
Continuing operations 115.6 (55.2) 60.4 79.2 (56.9) 22.3
Discontinued operations - - - (17.0) - (17.0)
Group operating profit/(loss) 115.6 (55.2) 60.4 62.2 (56.9) 5.3
Share of joint ventures 4.0 - 4.0 2.0 - 2.0
Total operating profit/(loss) 119.6 (55.2) 64.4 64.2 (56.9) 7.3
Net loss on business divestments 3
Loss before goodwill
written-back/off - (27.5) (27.5) - (23.2) (23.2)
Goodwill written-back/off - (12.3) (12.3) - (142.5) (142.5)
- (39.8) (39.8) - (165.7) (165.7)
Net profit/(loss) on fixed assets 4
Profit on disposal of fixed assets - 1.1 1.1 - 5.1 5.1
Amounts written-off fixed asset - (17.9) (17.9) - - -
investments
- (16.8) (16.8) - 5.1 5.1
Profit/(loss) on ordinary activities 119.6 (111.8) 7.8 64.2 (217.5) (153.3)
before interest
Net interest (26.5) - (26.5) (31.6) (2.4) (34.0)
Profit/(loss) on ordinary activities 93.1 (111.8) (18.7) 32.6 (219.9) (187.3)
before taxation
Taxation on profit/(loss) on ordinary (26.2) (1.2) (27.4) (9.8) (5.0) (14.8)
activities
Profit/(loss) on ordinary activities 66.9 (113.0) (46.1) 22.8 (224.9) (202.1)
after taxation
Minority interests (4.1) - (4.1) (2.4) - (2.4)
Profit/(loss) for the year 62.8 (113.0) (50.2) 20.4 (224.9) (204.5)
Dividends - - - - - -
Net loss transferred to reserves 62.8 (113.0) (50.2) 20.4 (224.9) (204.5)
Earnings per share - basic and
diluted 5 3.3p (2.7)p 1.1p (10.9)p
Statement of Group Cash Flows
for the year ended 31 December 2004
2004 2003
note £m £m
Net cash inflow from operating activities (see analysis below) 145.5 107.5
Dividends from joint ventures 2.3 2.2
Capital expenditure
Payments to acquire fixed assets (42.3) (48.5)
Receipts from disposal of fixed assets 1.5 5.8
(40.8) (42.7)
Operating cash flow 107.0 67.0
Net interest paid 7 (31.6) (29.1)
Dividends paid to minority interests (3.1) (1.5)
Taxation (20.7) (20.7)
Free cash flow 51.6 15.7
Net proceeds from business divestments 1.4 49.7
Consideration for business acquisitions (12.0) (19.1)
Other, including prior year disposals costs (10.0) (9.1)
Net cash flow before financing 31.0 37.2
Issue of shares 0.9 -
Refinancing costs paid (1.1) (1.5)
Decrease in net debt resulting from cash flows 30.8 35.7
Decrease in short-term deposits 3.4 -
Decrease in debt (39.7) (21.9)
(Decrease)/increase in cash during the year (5.5) 13.8
Analysis of Group Net Debt
Net debt at 1 January (358.5) (428.2)
Decrease in net debt resulting from cash flows 30.8 35.7
Foreign exchange adjustments 21.8 37.6
Amortisation of refinancing costs (1.0) (3.6)
Net debt at 31 December (306.9) (358.5)
Analysis of Net Cash Inflow from Operating Activities
Total operating profit before exceptional items and amortisation of intangibles 119.6 64.2
Depreciation 46.7 52.6
Less: share of profit of joint ventures (4.0) (2.0)
EBITDA from subsidiaries 162.3 114.8
Net (increase)/decrease in trade working capital and other movements 6 (2.6) 6.7
Rationalisation costs (14.2) (14.0)
Net cash inflow from operating activities 145.5 107.5
Group Balance Sheet
as at 31 December 2004
2004 2003
as
restated
(note 11)
note £m £m
Fixed assets 8 798.1 913.8
Current assets 9 596.3 626.9
Creditors: amounts falling due within one year (362.1) (430.5)
Net current assets 234.2 196.4
Total assets less current liabilities 1,032.3 1,110.2
Creditors: amounts falling due after more than one year (403.9) (412.0)
Provisions for liabilities and charges (57.3) (71.3)
571.1 626.9
Equity capital 375.5 375.4
Reserves 10 183.9 239.7
Minority interests 11.7 11.8
571.1 626.9
Net borrowings included above:
Borrowings - short-term 28.2 95.0
- long-term 326.1 320.3
Total gross borrowings 354.3 415.3
Less: cash and short-term deposits (47.4) (56.8)
Total net borrowings 306.9 358.5
Notes to the accounts
1 Segmental analyses
The results reported for 2003 as discontinued operations mainly comprise the
Electronics division's Speedline business. Speedline was largely based in the
USA, with satellite operations in Europe and Asia. Other disposals in 2003
included the Precision Products sector of the Precious Metals division which was
sold in January 2003 and largely based in the USA, three non-core European
businesses in the Ceramics and Precious Metals divisions and a non-core
Asia-Pacific joint venture in the Electronics division. These discontinued
operations previously formed part of the Group's ongoing operations.
2004 2003
Operating Operating
By division/sector Turnover profit/ Turnover profit/
(loss) (loss)
£m £m £m £m
Ceramics 739.4 56.8 706.9 49.8
Electronics 626.0 49.5 567.0 20.8
Assembly Materials 280.1 22.2 236.7 16.2
Chemistry 214.2 27.2 216.9 20.2
Laminates 131.7 0.1 113.4 (15.6)
Precious Metals 287.6 9.3 308.8 8.6
Joint ventures 45.2 4.0 41.2 2.0
1,698.2 119.6 1,623.9 81.2
Amortisation of intangible - (32.5) - (34.7)
assets
Exceptional items - (22.7) - (22.2)
Continuing operations 1,698.2 64.4 1,623.9 24.3
Discontinued operations - - 57.8 (17.0)
Group 1,698.2 64.4 1,681.7 7.3
Of the joint venture turnover of £45.2m (2003: £41.2m), £3.3m related to
Ceramics (2003: £4.2m) and £41.9m related to Electronics (2003: £37.0m). The
majority of joint venture results related to a Chemistry sector joint venture in
Japan which recorded turnover of £39.6m (2003: £30.5m) and operating profit of
£3.5m (2003: £2.0m) in the year. The Laminates sector's UK joint venture with
Fukuda, which was wound-up during 2004, contributed turnover of £1.1m (2003:
£2.3m) and an operating loss of £0.4m (2003: loss of £1.8m) in the year.
Of the amortisation charge of £32.5m (2003: £34.7m), £13.6m related to Ceramics
(2003: £15.1m), £16.9m to Electronics (2003: £17.5m) and £2.0m to Precious
Metals (2003: £2.1m). Of the Electronics goodwill amortisation charge of
£16.9m, £3.3m related to Assembly Materials (2003: £3.6m), £11.2m to Chemistry
(2003: £12.1m) and £2.4m to Laminates (2003: £1.8m).
Of the total exceptional items of £22.7m (2003: £22.2m), £2.9m related to
Ceramics (2003: £0.8m), £9.9m to Electronics (2003: £18.5m) and £9.9m to
Precious Metals (2003: £2.9m). Of the Electronics exceptional items of £9.9m,
£0.2m related to Assembly Materials (2003: £4.8m), £0.8m to Chemistry (2003:
£2.4m) and £8.9m to Laminates (2003: £11.3m).
2004 2003
By geographic location By By geographic By
customer location customer
of Group operations location of Group operations Location
Operating Operating
Geographical Turnover profit/ Turnover Turnover profit/ Turnover
(loss) (loss)
£m £m £m £m £m £m
United Kingdom 159.3 2.0 144.7 166.2 2.8 123.6
Continental Europe 485.2 32.4 449.8 486.1 21.4 471.2
USA 551.5 16.5 511.5 546.4 (1.4) 519.6
Asia-Pacific 360.2 56.4 410.2 289.2 44.3 331.5
Rest of the World 142.0 12.3 182.0 136.0 14.1 178.0
1,698.2 119.6 1,698.2 1,623.9 81.2 1,623.9
Amortisation of intangible - (32.5) - - (34.7) -
assets
Exceptional items - (22.7) - - (22.2) -
Continuing operations 1,698.2 64.4 1,698.2 1,623.9 24.3 1,623.9
Discontinued operations - - - 57.8 (17.0) 57.8
Group 1,698.2 64.4 1,698.2 1,681.7 7.3 1,681.7
Of the amortisation charge of £32.5m (2003: £34.7m), £3.6m (2003: £3.6m) was in
the UK, £4.3m (2003: £4.7m) in Continental Europe, £17.7m (2003: £19.0m) in the
USA, £5.3m (2003: £5.7m) in Asia-Pacific and £1.6m (2003: £1.7m) in the Rest of
the World.
Of the exceptional items of £22.7m (2003: £22.2m), £1.0m (2003: £1.0m) was in
the UK, £15.7m (2003: £10.7m) in Continental Europe, £5.7m (2003: £7.4m) in the
USA, £0.3m (2003: £3.0m) in Asia-Pacific and nil (2003: £0.1m) in the Rest of
the World.
The majority of discontinued operations were located in the USA.
2 Operating exceptional Items
The charges of £22.7m in 2004 and £22.2m in 2003 were the result of the
implementation of initiatives aimed at ensuring that the cost base of each of
the Group's major businesses is aligned with prevailing and near-term market
conditions. The initiatives implemented included redundancy programmes, the
consolidation of facilities, plant closures, the streamlining of manufacturing
processes and the rationalisation of product lines. Of the exceptional charges,
£7.9m represents asset write-downs (2003: £7.3m) the majority of which, together
with the plant closures, were in the USA and Continental Europe. Note 1 sets
out the charge by division/sector and geographic region.
Total cash spend in 2004 in respect of operating exceptional items was £14.2m
(2003: £14.0m), leaving aggregate provisions after exchange made but unspent in
respect of the above operating exceptional items of £15.1m as at 31 December
2004.
The taxation credit attributable to operating exceptional items was £1.0m (2003:
£2.6m).
3 Net loss on business divestments
The divestment of non-core businesses in 2004 produced a net loss of £39.8m,
after goodwill written-off of £12.3m. These included the Laminates sector's UK
joint venture with Fukuda, wound-up at a cost of £7.4m, and the sale of the
Ceramics division's European silica-zircon brick business, sold at a loss of
£33.2m.
The sale of non-core businesses in 2003 produced a net loss of £165.7m, after
goodwill written-off of £142.5m. These included the Electronics division's
Speedline businesses, sold for a loss of £141.5m after a goodwill write-off of
£114.9m in November 2003. Other disposals in 2003 included the Precision
Products sector of the Precious Metals division which was sold in January 2003,
three non-core European businesses in the Ceramics and Precious Metals divisions
and a non-core Asia-Pacific joint venture in the Electronics division.
The taxation credit attributable to the sale of operations was £2.5m (2003:
£7.6m charge).
4 Net (loss)/profit on fixed assets
The net loss on sale of fixed assets of £16.8m in 2004 (2003: £5.1m gain)
included a write-down of £17.9m related to the Group's investment in an 18 year
revenue-sharing arrangement with Electric Lightwave, Inc. Other sales of fixed
assets during the year earned profits of £1.1m after the receipt of £1.5m net
cash consideration.
The taxation charge attributable to the sale of fixed assets was nil (2003:
nil).
5 Earnings per share (EPS)
Basic and diluted EPS are calculated using a weighted average of 1,883m ordinary
shares in issue during the year (2003: 1,880m).
The Company believes that the calculation of EPS excluding all exceptional items
and the amortisation of intangibles, together with the associated tax charge or
credit, gives the most appropriate measure of the underlying earnings of the
Group. Using this measure, EPS amounted to 3.3p per share in 2004. This
compared to the 1.1p EPS reported in 2003. The basic and fully diluted loss per
share, after exceptional items and the amortisation of intangibles, was 2.7p
(2003: 10.9p).
6 Net (increase)/decrease in trade working capital and other movements
The movements in the year were as follows:
2004 2003
£m £m
Increase in stocks (16.8) (9.2)
(Increase)/decrease in trade debtors (6.3) 9.3
Increase in trade creditors 6.1 10.2
Net (increase)/decrease in working capital (17.0) 10.3
Other movements 14.4 (3.6)
(2.6) 6.7
7 Net interest paid
Interest paid in 2004 was £31.6m (2003: £29.1m) of which £0.1m was cash paid as
a result of interest rate swap close-outs (2003: cash proceeds of £5.3m).
8 Goodwill
Included in fixed assets is £446.6m of goodwill (2003: £505.6m). Goodwill
arising in 2004 amounted to £1.4m (2003: £4.4m) and all goodwill is amortised
over its estimated life of up to 20 years. Accumulated goodwill arising prior
to 1998, which remains fully written-off against Group reserves, amounts to
£315.5m (2003: £317.8m).
9 Current assets
Total current assets at 31 December 2004 of £596.3m (2003: £626.9m) comprise the
following:
2004 2003
£m £m
Stocks 174.0 172.9
Debtors - amounts falling due within one year 313.1 335.0
- amounts falling due after more than one year 61.8 62.2
Cash and short-term deposits 47.4 56.8
Total current assets 596.3 626.9
In addition to the stocks recorded in the balance sheet as current assets, the
Group held precious metals on consignment terms with a total value at 31
December 2004 of £185.6m (2003: £196.9m).
10 Reserves
Total
reserves
£m
At 1 January 2004
As previously reported 242.6
Prior year adjustment (see note 11) (2.9)
As restated 239.7
Exchange adjustments (8.7)
Loss for the financial year (50.2)
Share premium arising on share option exercises 0.8
Goodwill written-back on disposals 2.3
At 31 December 2004 183.9
11 Prior year adjustment
The Company has made a prior period adjustment during 2004 following the release
of Urgent Issues Task Force (UITF) Abstract 38 'Accounting for ESOP Trusts'.
This Abstract superseded UITF 13, which required that own shares in the Company
held through its Employee Share Ownership Plan (ESOP) be disclosed as a fixed
asset investment on the face of the Company's balance sheet. Due consideration
needed to be made at each reporting period to the existence of impairment in the
carrying value of the investment. UITF Abstract 38 now requires that such
shares be held as a deduction from equity, at the gross cost paid by the Company
for the shares.
The adoption of UITF Abstract 38 has given rise to a cumulative prior period
adjustment to the opening profit and loss account of £2.9m debit at 31 December
2004 and 31 December 2003. This represents the carrying value of the ESOP
shares at 31 December 2003 and 31 December 2004. Between 1998 and 2002 £9.5m of
provisions had been charged through the profit and loss account to recognise
impairment in the carrying value of the ESOP shares. The gross cost of the ESOP
shares at all times between 1 January 2003 and 31 December 2004 was £12.4m.
12 Currency
The Group reports its results in pounds sterling. A substantial portion of the
Group's sales and profits are denominated in US dollars and in currencies other
than pounds sterling. It is the Group's policy to translate the profit and loss
and cash flow statements of overseas operations into pounds sterling using
average annual exchange rates and to translate the balance sheet using year end
rates. The principal exchange rates used were as follows:
Year ended 31 December
2004 2003 2004 2003
Average rate Year end rate
US dollar ($ per £) 1.83 1.63 1.92 1.79
Euro (€ per £) 1.48 1.45 1.41 1.42
Singapore dollar (S$ per £) 3.09 2.84 3.15 3.04
Hong Kong dollar (HK$ per £) 14.25 12.69 14.94 13.90
13 Financial information
This preliminary results announcement has been prepared on the basis of the
accounting policies adopted in the Group's audited statutory accounts for 2004.
The financial statements were approved by the Board of Directors on 15 March
2005. The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2004 or 2003 but is derived
from those accounts. Statutory accounts for 2003 have been delivered to the
Registrar of Companies and those for 2004 will be delivered following the
Company's Annual General Meeting. The report of the auditor was unqualified and
did not contain a statement under section 237 (2) or (3) of the Companies Act
1985. These sections address whether proper accounting records have been kept,
whether the Company's accounts are in agreement with these records and whether
the auditor has obtained all the information and explanations necessary for the
purposes of their audit.
This information is provided by RNS
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